Janette L Davis, CPA, LLC

The Internal Revenue Service has launched a new program that will allow many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers.

This new program will allow employers the opportunity to become compliant by making a minimal payment  that covers  past payroll tax obligations as opposed to the IRS finding you out through an audit.

The IRS has created an inititative that is called “Fresh Start” which allows taxpayers and businesses to address their tax responsibilities.

“This settlement program provides certainty and relief to employers in an important area,” said IRS Commissioner Doug Shulman. “This is part of a wider effort to help taxpayers and businesses receive a fresh start with their tax obligations.”

The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce the  burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously classify their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.

To be eligible, an applicant must:

• Consistently have treated the workers in the past as nonemployees,
• Have filed all required Forms 1099 for the workers for the previous three years
• Not currently be under audit by the IRS
• Not currently be under audit by the Department of Labor or a state agency concerning the classification of these workers

Interested employers should complete an application for the program - "Application for Voluntary Classification Settlement Program," at least 60 days before they want to begin treating the workers as employees.

Employers who are accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

Most companies do not have a strategy to prevent fraud.  Some companies only have a strategy to detect and investigate fraud but every company must have a strategy to     prevent as well as fight fraud.  Companies will find that their incidences of fraud will decrease when a well-rounded anti-fraud program is developed that puts measures in place to prevent fraud.

One of management’s biggest challenges is to understand that the risk of fraud can never be underestimated. Those who have not suffered from fraud previously will be unaware of the risks and costs. Management may simply think in terms of the direct financial costs but need to be encouraged to look further at other costs, some of which are consequential loss, legal and investigative costs, regulatory fines,  management time, increased insurance premiums,  loss of key staff and customers and increased cost of financing or the inability to raise new financing.

Fraud can never be eliminated from a business entirely, simply because collusion can

always overcome normal organizational controls. Combating fraud needs a different and

fresh approach that should cover all aspects of the fraud cycle which include not only fraud deterrence and prevention but fraud detection and fraud investigation.
   

The key in limiting damage when fraud is discovered depends on the actions taken in the first few hours, days, or weeks.  The plan should identify at least one individual to whom fraud or suspicion of fraud should be reported to.  Those concerned should be given proper training and guidance on what to do once the fraud has been reported.